US job gains offer bright sign for economy

A decisive turnaround in the housing market and rebuilding on the East Coast after the destruction by Superstorm Sandy in late October is boosting jobs at construction sites.
Photo: Bloomberg

by
Lucia Mutikani

US employers stepped up hiring in February, adding a greater-than-expected 236,000 workers to their payrolls and helping to push the jobless rate to a four year-low in a bright signal on the economy's health.

The data from the Labor Department on Friday showed the economy gaining traction despite the blow from higher taxes and deep government spending cuts.

"This was a strong number and one of those rare cases where we were firing on all cylinders," said Jacob Oubina, a senior US economist at RBC Capital Markets in New York.

The jobless rate fell to 7.7 per cent, the lowest since December 2008, from 7.9 per cent in January. The decline reflected both gains in employment and people leaving the labour force.

The upbeat report, which showed broad-based job gains, was another sign of the economy's fundamental health, and it added fuel to a rally in US stock markets that had already propelled the Dow Jones industrial average to record highs.

At the same time, the dollar strengthened and the yield on the benchmark 10-year US Treasury note rose sharply.

‘SWEET SPOT OF SORTS’

Economists had expected a gain of just 160,000 jobs. Nonetheless, the data was not so strong as to deter the Federal Reserve in its efforts to foster even faster economic growth by buying bonds, a policy known as quantitative easing.

Related Quotes

Company Profile

"We're in a sweet spot of sorts with the data showing a more robust recovery, which supports stocks and the dollar, yet not quite strong enough to declare an end to quantitative easing," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Although December and January's employment data was revised to show 15,000 fewer jobs added than previously reported, details of the report were solid, with construction adding the most jobs since March 2007 and increased hours for all workers.

Job gains in February were well above the 195,000 monthly average for the three months through January.

FED STILL IN PLAY

Despite the pick up in hiring, the pace of gains is still below the roughly 250,000 jobs per month that economists say is needed on a sustained basis to significantly reduce unemployment.

With fiscal policy tightening, Fed officials are likely to remain leery of withdrawing their support for the economy too soon. A 2 per cent payroll tax cut ended and tax rates went up for wealthy Americans on January 1. In addition, $US85 billion in federal budget cuts that could slice as much as 0.6 percentage point from growth this year started on March 1.

The central bank is buying $US85 billion in bonds per month and has said it would keep up asset purchases until it sees a substantial improvement in the labor market outlook.

Since the 2007-09 recession ended, the economy has struggled to grow above a 2 per cent annual pace. In the fourth quarter, output barely expanded.

CONSTRUCTION JOBS RISE

In February, the construction employment increased by 48,000 jobs after rising by 25,000 in January.

A decisive turnaround in the housing market and rebuilding on the East Coast after the destruction by Superstorm Sandy in late October is boosting jobs at construction sites.

Manufacturers stepped up hiring in February, although the pace was still well below early last year because of lacklustre domestic demand and cooling growth overseas. Factory jobs increased 14,000 last month after rising 12,000 in January.